Bus Rapid Transport Development in Greater Jakarta (Jabodetabek)

Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) Finance-Ready Proposal December 2015

Contents 1. Background... 5 2. Introduction... 8 3. Climate Finance in Indonesia... 13 3.1 Domestic Climate Finance... 13 3.2 International Climate Finance... 14 4. Institutional Framework in Indonesia... 15 5. Policy and Legal Framework... 18 5.1 Presidential Decrees... 20 5.2 Policy Instruments... 20 6. Costs and benefits of NAMA Intervention... 22 6.1 Input Parameter Selection... 23 6.2 Indicators for Investment Analysis... 24 6.3 Assumptions and Data Requirements... 24 6.4 Scenario Description... 26 6.4.2 Project Scenarios... 26 6.5 Factors Affecting Mode Share Shift... 27 6.6 Calculation... 28 6.6.1 Emission Reduction Calculation... 28 6.6.2 Travel Time Reduction Calculation... 30 6.6.3 Detailed IRR and EIRR calculation... 32 6.6.4 Policy suggestions that can help accelerate mode shift from private to public transport... 32 7. Sensitivity Analysis... 35 7.1 Sensitivity Analysis of Emissions Reduction... 35 7.2 Sensitivity Analysis of IRR... 37 7.3 Percentage Change in IRR/EIRR... 38 7.4 Summary... 46 8. Potential Barriers for Project Implementation... 47 8.1 Financial Barriers... 47 8.2 Institutional/Regulatory Barriers... 47 8.3 Technological Barriers... 48 8.4 Behavioral/Informational Barriers... 48 9. Capacities of Delivering Finance... 49 10. The case for NAMA financing of the proposed BRT projects... 50 References... 51 Annexures... 52 1

List of Figures Figure 1 - Map of Transjakarta... 10 Figure 2 - Institutional Framework... 16 Figure 3- Policy measures for Climate Change mitigation undertaken in Indonesia... 19 Figure 4 ER (tco2) in Year 1 to ER (tco2) in Year 10 in Scenario 1... 36 Figure 5 - ER (tco2) in Year 1 to ER (tco2) in Year 10 in Scenario 2... 36 Figure 6 - ER (tco2) in Year 1 to ER (tco2) in Year 10 in Scenario 3... 37 Figure 7 - Percent Change in IRR vs Percent Change in Fuel Rate (Price of fuel per litre) - Project Scenario 1... 38 Figure 8 - Percent Change in IRR vs Percent Change in Total Fuel Consumption - Project Scenario 1... 39 Figure 9 Percent Change in IRR vs Percent Change in Passengers/yr. - Project Scenario 1... 39 Figure 10 - Percent Change in IRR vs Percent Change in Fare Rate - Project Scenario 1... 40 Figure 11 - Percent Change in IRR vs Percent Change in Depreciation on assets - Project Scenario 1... 40 Figure 12 - Percent Change in IRR vs Percent Change in Depreciation on Civil Works - Project Scenario 1... 41 Figure 13 - Percent Change in IRR vs Percent Change in Total project cost incurred in the first three years - Project Scenario 1... 41 Figure 14 - Percent Change in IRR vs Percent Change in Bus Replacement Cost after 10 years of operation- Project Scenario 1... 42 Figure 15 - Percent Change in IRR vs Percent Change in Bus Replacement Cost after 20 years of operation - Project Scenario 1... 42 Figure 16 - Spider Graph of Percent Change in IRR - Project Scenario 1... 43 Figure 17 - Spider Graph of Percent Change in IRR - Project Scenario 2... 43 Figure 18 - Spider Graph of Percent Change in IRR - Project Scenario 3... 44 Figure 19 Spider Graph of Percent Change in EIRR in Project Scenario 1... 44 Figure 20 - Spider Graph of Percent Change in EIRR in Project Scenario 2... 45 Figure 21 - Spider Graph of Percent Change in EIRR in Project Scenario 3... 46 List of Tables Table 1 - Emission Reduction Savings... 29 Table 2 Accumulated Travel Time Savings... 31 Table 3 - Sensitivity of final IRR values... 37 2

List of Abbreviations ADB AFD APBD APBN BAPPENAS BRT CCPL CDM COP DKI DNPI EIRR ER FPA GFC GHG ICCTF IGIF IRR JICA LoI MRU MRV NAMA NAP OMS PES PIP RAD GRK RAN GRK REDD RPJMD Asian Development Bank Agence Française de Développement Anggaran Pendapatan dan Belanja Daerah - Regional Government Budget Anggaran Pendapatan dan Belanja Negara State Budget Badan Perencanaan Pembangunan Nasional - National Development Planning Agency Bus Rapid Transit Climate Change Programme Loan Clean Development Mechanism Conference of Parties Daerah Khusus Ibukota Special Capital Region Dewan Nasional Perubahan Iklim- National Council on Climate Change Economic Internal Rate of Return Emissions Reduction Fiscal Policy Agency Global Financial Crisis Greenhouse Gas Indonesia Climate Change Trust Fund Indonesian Green Investment Fund Internal Rate of Return Japan International Cooperation Agency Letter of Intent Mobile Refueling Units Measuring, Reporting & Verification Nationally Appropriate Mitigation Action National Action Plan Operational & Maintenance Services Payment for Ecosystem Services Pusat Investasi Pemerintah Government Investment Unit of Indonesia Local Mitigation Action Plan for Greenhouse Gas Emission Reduction Rencana Aksi Nasional Penurunan Emisi Gas Rumah Kaca - National Action Plan for Green House Gas Emission Reduction Reducing Emissions from Deforestation and Degradation Rencana Pembangunan Jangka Menengah Nasional - Regional Midterm Development Plan 3

SPBG UNFCCC WB Stasiun Pengisian Bahan Bakar Gas Special Stations for selling CNG products United Nations Framework Convention on Climate Change World Bank 4

1. Background Indonesia is a tropical archipelago comprising of about 17,000 islands. With an estimated population of 240.8 million, Indonesia is the fourth most populous nation in the world after China, India, and the USA. About 44% of the population of Indonesia resides in urban areas, with the annual rate of urbanization estimated at 1.7% over 2010-15, and land transport plays a major role in fuel consumption. Land transport consumes nearly 50% of the total fuel consumption in Indonesia, of which nearly 90% is consumed by road transport. With the country s population expected to grow by 2.5 million people per year through to 2015, car ownership is growing at about 12%/year, bus and lorry ownership by about 11%/year, and motorcycle ownership by 17%/year. This rate of growth is expected despite the roads in cities growing at less than 1%/year. These trends have led to increased traffic congestion and air pollution, with the transport sector contributing 60% to 80% of all air pollution. As an emerging economy in the dynamic Asia-Pacific region and one of the world s fastest growing economies, Indonesia s gross domestic product has grown 5.7% on average for the past 20 years. Sustainable planning may not always be aligned with accelerated development, however, and Indonesia is marred by failing infrastructure, especially regarding present traffic conditions. Indonesia is particularly susceptible to non-sustainable practices as the country ranks first in global marine biodiversity and second in terrestrial biodiversity. In September 2009, during the G20 Summit meeting in Pittsburgh in the USA, Indonesia committed to establish policies and measures along with related instruments (Situmeang and Lubis, 2009). Indonesia s President Yudhoyono pledged to cut emissions by 26% by 2020 using the state budget and by 41% if financial support was received from developed nations compared to a business as usual scenario. Following this announcement, in December 2009, Indonesia subscribed to the Copenhagen Accord. The National Council on Climate Change (DNPI) - the responsible body for policy co-ordination to address climate change - reported its NAMA ambitions as a follow-up to the Copenhagen Accord to achieve national targets, notably including the following seven major focus areas 1. 1. Sustainable Peat Land management 2. Reduction in Rate of Deforestation and Land Degradation 3. Development of Carbon Sequestration Projects in Forestry and Agriculture 4. Promotion of Energy Efficiency 5. Development of Alternative and Renewable Energy Sources 6. Reduction in Solid and Liquid Waste 7. Shifting to low-e mission Transportation mode. Under the aegis of the Indonesian Ministry of Transport, the NAMA program in the transportation sector promotes sustainable urban transport in Indonesian Cities by implementing and monitoring measures in order to halt the increasing motorization and reduce externalities of transportation. For example, the country is implementing a NAMA in the transportation sector named Sustainable Urban Transport Programme (NAMA SUTRI). The scope of this project largely covers: Public Transport system improvements (system reform, network, management, operation) 1 http://unfccc.int/resource/docs/2011/awglca14/eng/inf01.pdf 5

Investment in energy efficient vehicles (buses) Investment in infrastructure (e.g., bus stops, pedestrian infrastructure, parking meters) Integrated planning, parking management, informal bus-system / private vehicle regulation The pilot phase of NAMA SUTRI, which has successfully applied for and was selected to receive financial support for implementation through the NAMA Facility, does not include large infrastructure projects e.g., rail projects, bridges, or road construction for road network extension. To complement NAMA SUTRI, this NAMA concept note describes a second NAMA concept that elaborates construction of a bus rapid transit (BRT) system in greater Jakarta. Implementing this BRT NAMA, officially entitled Bus Rapid Transport Development in Greater Jakarta (Jabodetabek), is envisaged to bring a considerable mode shift from the private to public system, thereby substantially reducing GHG emissions. Jabodetabek is the name formed by combining initial syllables for the five Greater Jakarta regions, Jakarta, Bogor, Depok, Tangerang, and Bekasi. NAMAs are crucial for the implementation of various climate action plans that are part of the National Action Plan for Green House Gas Emission Reduction (RAN-GRK) and Local Mitigation Action Plan for Greenhouse Gas Emission Reduction (RAD GRK) in Indonesia. This is because: (i) (ii) (iii) NAMAs are meant to provide important means for operationalizing the RAN-GRK; NAMAs can help Indonesia to tap the Green Climate Fund and other international funds; and NAMAs should enable Indonesia to obtain UNFCCC recognition for its mitigation efforts. Jabodetabek is a large-scale metropolitan area with a population of 21 million that consists of Daerah Khusus Ibukota/DKI (Capital Special Region) Jakarta, as the capital city of Indonesia and center of politics, economy and social activities, and seven local governments (Bodetabek) in the surrounding areas: Kota (municipality) Bogor, Kabupaten (regency/district) Bogor, Kota Depok, Kota Bekasi, Kabupaten Bekasi, Kota Tangerang, and Kabupaten Tangerang. Traffic congestion is a chronic problem faced in the Jabodetabek region and the situation is expected to worsen should there be no improvement on the existing transportation system. At present, the economic loss caused by traffic congestion in the region is estimated as much as USD 68 million per year and this estimate excludes the impacts of traffic congestion and pollution on human health (Asri and Hidayat, 2005). The Transjakarta BRT was launched in 2004 to provide a way for Jakarta s citizens to get through the city s notorious congestion and to reduce greenhouse gas (GHG) emissions. The environmental objective of this project has been to reduce GHG emissions from urban transportation by improving a BRT system and its related facilities. The overall objective of the Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) NAMA project is to maximize the effectiveness of Jakarta s BRT system and use it as a catalyst for urban transport reform in Jakarta and other key Indonesian cities. This NAMA concept has been developed by conducting numerous interviews and in-country missions to interview local experts, including Ministry of Transportation, Environmental Agency, Transjakarta, DNPI and the former President's Delivery Unit for Development Monitoring and Oversight (UKP4). Ernst & Young consultants were provided a NAMA report for review and as a reference during the inception phase of the NAMA development project that was developed by local consultants, Institut Teknologi Bandung. In Jakarta, the primary policy for improving transport and reducing congestion and emissions has been through supporting the Transjakarta Busway, which currently has 12 corridors. A corridor is defined as a separate pathway along which only the BRT buses travel, separate from other vehicular movement on the road. The Transjakarta Busway has seen a steadily increasing mode shift of users from cars to the busway. Other policies that have been introduced include restricting lanes to cars with at least three passengers and the introduction of road pricing. The government is also considering supporting energy 6

diversification in transport (including biofuels and liquefied petroleum gas or LPG), encouraging the use of cycles and improving traffic safety. The benefits of the Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) NAMA are to be evaluated in terms of annual GHG emission reductions and travel time savings. The NAMA achieves these targets by improving the performance of the BRT by maximizing ridership and utilizing the BRT to build the image of public transport, improving pedestrian facilities, improving transport demand management and scaling up non-motorized transport. Increasing demand for personal mobility as a consequence of ever-increasing economic activity in Greater Jakarta (Jabodetabek) requires the availability of an efficient transportation system. In this regard, quality mass public transport is considered the most suitable transportation system as it will facilitate a modal shift from personal to mass transport and therefore reduce traffic congestion, improve transport energy efficiency, and reduce GHG emissions and air pollution. Keeping this in mind, the proposed NAMA project that is described in detail in Section 3 is being implemented to upgrade the existing BRT system in DKI Jakarta. The NAMA is largely unilateral or funded from national sources; however, there exists gaps in finance so there is potential for scaling up of the NAMA activities. This finance-ready proposal can be utilized to avail funding for this NAMA project to complement the unilateral component. Originally, this NAMA project was proposed to be a unilateral NAMA, funded using a domestic budget, namely from the APBN/APBD (central/local government budget), private sector, and other sources (the Central Government Investment Agency known as Pusat Investasi Pemerintah or PIP, the Indonesia Climate Change Trust Fund or ICCTF, etc.). The possibility of international funding is now being evaluated because there exists gaps in finance. Therefore, this finance-ready proposal can be utilized to avail funding for this NAMA project as needed. In a mega city and economic center like DKI Jakarta where many of the workers commute daily from its surrounding cities, reduced traffic congestion will reduce commuting time and eventually will improve the productivity of the workers. Modal shift from personal to mass public transport will therefore reduce transport cost and lead to time saving benefit for the workers. 7

2. Introduction The main objective of the Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) NAMA is to further develop the BRT system in Jakarta in order to reduce traffic congestion, increase energy efficiency in transport, improve urban air quality, and reduce GHG emissions from urban transport. As noted in the National Action Plan to Reduce Greenhouse Gas Emissions or RAN-GRK, transport is one of the five mitigation priority areas. This NAMA is aimed at infrastructure development for facilitating public transportation for commuters from outside and within DKI Jakarta. Administratively, the main proponent of the NAMA project is the government of DKI Jakarta. The project is expected to encourage traffic mode share shift from private to public transportation. This NAMA report was developed under the UNDP Low Emission Capacity Building (LECB) Programme, a global initiative in 25 countries to build capacities to design and implement low emission development. The LECB Programme is supported through generous contributions from the European Commission, the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), and the Government of Australia. More information can be found at www.lowemissiondevelopment.org. The NAMA includes three main components, notably the procurement of gas-fueled buses for Transjakarta busway, construction of bus lanes, bus stops, and gas refueling stations as per the following specifications: Procurement of 380 natural gas-fueled buses in 2015 2017 Construction of three new corridors No. 13, 14 & 15 (bus lanes) that span 49.3 km in 2016-2017 Construction of five gas refueling stations in 2015-2017 The new buses procured will cater to all the 15 corridors, however the five new gas stations will cater to the new bus corridors 13 to 15. The implementation phase of the project will span for three years and after the buses and new corridors are operational, the buses will be replaced every 10 years. In conjunction with NAMA design and implementation, several measures are being undertaken to scale up the modal shift in transportation to BRT, and this is anticipated to support issues that have thus far limited widespread growth in BRT use. Notably, there has been a lack of busses on the road, noncompliance of bus procurement contracts, lack of strict regulation on traffic lane violations in Jakarta, fossil fuel subsidies that incentivize ownership of personal vehicles, and lack of capacity to monitor the Transjakarta network in real time. In Jakarta city, fuel used by buses is natural gas while cars and motorcycles use diesel. Hence, the pollution index of the buses (1.73kg/L) is much lower in comparison to cars (2.42kg/L) and motorcycles (2.42kg/L). Currently, the buses is less in comparison to private modes of transport. Hence, the project scenarios for the NAMA intervention has been considered to have shift of passengers from high emission inducing mode of transport to lower emission inducing mode of transport. This will moreover, help to introduce more natural gas buses into the system. The above project is in line with RPJMD (Regional Midterm Development Plan) and RAD (Regional Mitigation Action Plan) of the region. The BRT Jabodetabek, started in 2004 in DKI Jakarta, was funded using APBD (regional government budget). This NAMA project for DKI Jakarta is expected to lead to GHG emission reduction of 0.443 million-ton CO 2 starting in 2018. It should be noted that between 2019 and 2030, some of the buses that will have already passed their technical life expectancy and will have to be replaced. The RAD target of Jakarta is to achieve GHG emission reduction estimated to around 60 Mton 8

CO 2 eq (CER Indonesia, 2011). The largest source to reduction is expected to come from transportation with 57% contribution, followed by electricity. Therefore, the implementation of this NAMA project can help meet the RAD target in DKI Jakarta. This finance-ready NAMA proposal evaluates the present climate change finance landscape in Indonesia and the policy and regulatory framework conducive to financing such NAMA projects in Indonesia, and also discusses the potential barriers envisaged for project implementation. The possible financial instruments have also been identified to scrutinize the accessibility of finances for the defined NAMA and the current capabilities of delivering finance in Indonesia. By studying the NAMA technical requirements, available data of the existing corridors and national environmental policies, by analyzing all driving factors, forecasting the national economic priorities, and illustrating alternative scenarios of the planned measure, a cost benefit analysis of the project case was developed. The cost benefit analysis that was conducted as a part of the IRR and EIRR calculation depicts the total costs of implementation of the planned measures and indicates the direct emission reduction benefits of the NAMA project. The project is analyzed as compared to a Baseline/No Build BRT scenario, Business As Usual scenario (BAU), and three possible project scenarios in consultation with UKP4, UNDP- LECB, Institut Teknologi Bandung, Transjakarta, Ministry of Transportation, and Environment Agency. The three possible NAMA project scenarios considered and analyzed are as follows: Reduction of 25% of cars and motorcycles from the Baseline scenario Reduction of 35% of cars and motorcycles from the Baseline scenario Reduction of 45% of cars and motorcycles from the Baseline scenario The map of Transjakarta provided in Figure 1 depicts the existing and proposed corridors. The proposed corridors are marked using dotted grey lines. 9

Source: Transjakarta Figure 1 - Map of Transjakarta This NAMA proposal has been prepared on behalf of the Government of Indonesia to upgrade the Transjakarta BRT. This proposal summarizes the main objectives of the NAMA project, costs, projected GHG emissions, internal return on investment, the need for the project, the current status of climate finance in the country, and the institutional, policy and legal frameworks that could be supportive of the project. In addition, a detailed investment analysis has been done through cash flow calculation, financial flow requirements and estimating the project internal rate of return (IRR), and economic internal rate of return (EIRR). The Sensitivity Analysis that was performed (see Section 7) shows how the values of IRR, EIRR, and expected emissions reduction change for each of the three alternative scenarios as input parameters change, therefore analysing the risk of investing in the project. The proposal concludes with an analysis 10

of the possible barriers to project implementation and the project management capabilities in Indonesia. This proposal therefore presents a viable business case for this project. MRV system development is not incorporated into this report. The MRV system for the NAMA was developed separately by the LECB-Indonesia team. Aside from being an international requirement under the UNFCCC, MRV of mitigation actions is also an important management tool for countries to use to track their progress in moving to a low-emission development path and in achieving sustainable development goals. In this way, MRV becomes an important GHG management tool, since it enables monitoring of the implementation and effectiveness of mitigation actions. The measurement component of MRV enables assessment of the implementation of plans, the achievement of objectives/goals and the taking any necessary corrective steps that may be required. Reporting and verification ensure communication of consistent and reliable information to appropriate authorities in order to facilitate assessment. Communication and information strategies: In Indonesia, there are already existing BRT corridors (e.g., in Jakarta and Yogyakarta) and the Indonesian Government has already started implementing various instruments like regulatory, planning, fiscal, Investment, communication and information to bring about transformational changes to the sector. Going forward, it is recommended a comprehensive BRT communication and information strategy is developed that may include: 1. Developing vehicle fuel-efficiency standards (national): Ministry of Energy and Mineral Resources (MEMR) and Ministry of Transport are the key ministries which should be involved in developing vehicle fuel-efficiency standards. A recent study sponsored by Ministry of Finance, Government of Indonesia recommended introduction of vehicle efficiency standards along with measures to reduce congestion (like BRT). 2 2. Driver training: To make the BRT successful in terms of emission reduction, the Indonesia Ministry of Transport has to mandate special bus driver training programs. Transjakarta may acquire support from external agencies or use internal expertise for developing the training modules for the drivers who will be employed in the BRT corridor. 3. Information campaigns (local, regional, national): BRT system was introduced in Jakarta in 2004 and is already a popular mode of transport. The peak throughput (passengers/hr/direction) for the existing BRT system is 3,400 passengers (as of 15 May 2012) for the south of Tosari station (line 1). The number of system passenger-trips per day for the BRT in Indonesia are around 350,000 (Dec-12). 3 Hence, the Ministry of Transport and Transjakarta are not new to the concept of information campaigns required to encourage widespread use and ridership of BRT. To promote the new BRT lines, sustained communication, education, marketing and advocacy activities may be carried out. This may include advertisements on electronic and traditional billboards in key areas, prime time airing of television and radio spots advertisements, and newspaper advertisements. Further, Transjakarta may carry out systematic public relations initiatives to guarantee continued media coverage on the progress of the new BRT project. Such media coverage should illustrate success stories showcasing the benefits of the BRT for passengers. Posters, flyers, etc. should be developed for information dissemination, and displays at prominent transport hubs like airport and railway stations. 2 http://www.vivideconomics.com/wp-content/uploads/2015/10/34a-final-report-consolidated-renewable-energy-and-energy- Efficiency-English.pdf 3 http://www.worldbrt.net/en/cities/jakarta.aspx 11

Transjakarta already has a BRT website and a mobile based application system to support ease of access to information. After seeking passenger input, the mobile app based system should be regularly updated to make the Mobile App more interactive as well as user friendly. 4. Multimodal journey planners (local): To create a transformational change in how people travel in Jakarta, Transjakarta along with City Administration of Jakarta has to invest in developing an intelligent transport system (ITS). The ITS would provide travelers with comprehensive micro level information allowing traveler to make well informed decisions. The proposed ITS would need to efficiently integrate information for different transport modes based on the pillar of rail and BRT. The main objective of the ITS action plan should be to optimally use travel and traffic information to encourage multimodal travel. All the assumptions made for the purpose of the model calculations are based on stakeholder consultations, a summary of which has been attached in Annexure A. 12

3. Climate Finance in Indonesia This section details the current climate finance climate in Indonesia. The sub-sections provide an overview of domestic and international climate finance available in the country that is contributing to meet emission reduction targets and therefore provides clarity on the need for further climate funding. At least IDR 8,377 billion (USD 640 million) 4 of climate finance from public sources was disbursed in Indonesia in 2011. This figure of 2011 expenditure falls below Indonesian government estimates of the level of annual finance required by 2020 to meet emission reduction targets. However, both domestic and international public flows are expected to grow in the next few years as comprehensive national policies on climate change mitigation (RAN-GRK) and adaptation (RAN-API) are fully implemented (Ministry of Finance & Climate Policy Initiative, 2014). 3.1 Domestic Climate Finance Mitigation projects can directly or indirectly reduce GHG emissions. Direct mitigation activities are GHG reductions that occur directly because of the investment made. For example, investment in RE generation, waste management projects, etc. Indirect mitigation results in GHG emission reduction as an indirect effect of investment made such as investment in manufacture of energy efficient products, projects to improve fuel efficiency of cars, etc. National public resources are at the center of Indonesia s climate finance landscape. Based on 2011 data, the bulk of domestic climate finance supported essential indirect activities, such as policy development, research and development, establishment of measuring, reporting and verification systems, and other enabling environments. These activities are expected to drive the future scale up and effective allocation of finance by laying the foundation for direct mitigation projects. The Government of Indonesia s focus on indirect activities was so directed because of its role in developing and implementing policies and frameworks to stimulate direct investments (Ministry of Finance & Climate Policy Initiative, 2014). In terms of indirect activities, most support was targeted at the forestry sector (73%), with another 10% targeted at agriculture and 7% focused on energy. This focus aligns with the fact that a high percentage of Indonesia s emissions come from the land sector. Finance for direct mitigation in Indonesia was targeted at transport (35%), waste and waste-water (26%), agriculture and livestock management (27%), and energy (10%). In 2011, central budget expenditure of IDR 5,975 billion or USD 460 million was used for climate financing in Indonesia. This amount included international money received by the central government and channeled directly into the state budget. These flows were disbursed mainly to central government ministries and agencies (97%), with expenditures to local governments making up the very small remaining portion (Ministry of Finance & Climate Policy Initiative, 2014). In addition to budget transfers in 2011, the central government made investments (a total of IDR 1,266 billion or USD 100 million), mostly through equity participation in state-owned enterprises and revolving funds to support projects and activities that generated revenues. However, of the total investments, only 4 All the conversions in this report from IDR to USD have been made on the basis of exchange rate as on April 27, 2015. 13

IDR 30 billion were disbursed through the revolving funds to project activities in 2011 (Ministry of Finance & Climate Policy Initiative, 2014). 3.2 International Climate Finance International development partners have added significantly to domestic public resources by contributing an estimated IDR 2,851 billion (USD 220 million) to public climate finance flows in 2011. In this year, the majority (68%) of international climate finance went directly to fund mitigation and adaptation projects happening on the ground. A large share of this (55%) went directly to state-owned enterprises and the private sector (mostly in the form of loans). The remaining 32% of international public climate finance went to support indirect activities by central and local governments (e.g., policy development) and organizations involved in capacity and knowledge building, including private consultancies, international organizations and NGOs (Ministry of Finance & Climate Policy Initiative, 2014). In 2011, international resources were split almost evenly between grants and loans in support of climate change projects. Loans went to support infrastructure projects with direct mitigation and adaptation benefits (e.g., a geothermal power plant, and a drainage rehabilitation project), while grants were directed to building enabling environments and other forms of readiness. The Climate Change Programme Loan (CCPL), managed by the Ministry of Finance, was a concessional loan provided by international donor agencies (JICA, AFD, ADB, and WB) to support efforts to develop a lower carbon and more climate resilient growth path. This policy loan 5 was incorporated into the general budget and was not attached to any specific programme of a line ministry. The loan disbursements were governed by a policy action framework agreed in advance with the Government. The Indonesia Climate Change Trust Fund (ICCTF), established in 2009, is managed by the National Development Planning Agency known as Bappenas. This is a national fund that coordinates sources of climate finance and aligns them with national development priorities. The ICCTF acts as a vehicle for donors making financial pledges to pool resources for efficiency gains by reducing transaction costs. CCPL and ICCTF are examples of successful disbursements of international climate finance that show that development partners operating in Indonesia and the Government of Indonesia are equipped to absorb significant climate change-directed resources at scale or pace. This proposal reflects the viability of the BRT up-gradation project to be funded using international grants. 5 Here, policy loan refers to CCPL. This loan supports the policies for lower carbon and more climate resilient growth path. 14

4. Institutional Framework in Indonesia This section identifies the institutional framework in Indonesia that governs the development and implementation of NAMAs for the transport sector. In 2008, the National Council on Climate Change, or Dewan Nasional Perubahan Iklim (DNPI) in Indonesian, was established by Presidential Decree No. 48/2008 as the primary body for policy coordination on climate change. The Ministry of Finance established the Centre for Climate Change Financing and Multilateral Policy at the Fiscal Policy Agency (FPA) in 2011 to perform such functions as formulating policy recommendations, and analyzing, evaluating, coordinating, implementing and monitoring climate change financing-related issues. This Centre also deals with economic and financial cooperation within the G20 and other multilateral forums. In addition, the Ministry of Finance has a Technical Assistance Team on Climate Change Policy (soon to be renamed The Technical Assistance Team on Green Economy) reporting directly to the Finance Minister. The Ministry of Finance authorizes the PIP (the Indonesia Investment Agency), which is a part of the Ministry of Finance, to invest and finance low carbon investments in partnership with the private sector. The PIP is planning to form the Indonesian Green Investment Fund (IGIF), a pooling fund with participation from government, multilateral agencies, donors, and private sources, with the purpose to finance environmental friendly investments through public private partnership (PPP) schemes. The National Development Planning Agency (Bappenas) performs many roles related to mapping direction for Indonesia s mitigation activities. Based on cost effectiveness and implementability, Bappenas establishes a national priority list of potential mitigation actions to establish NAMAs in meeting the national emission reduction target, aggregating mitigation actions into NAMAs where appropriate. Bappenas s tasks include: Setting medium and long-term goals; Constructing a national BAU baseline based on an aggregated sector data, and analyzing trajectories for national emission reduction; Identifying potential mitigation actions, and their aggregate mitigation potential; Establishment of carbon budgets for each sector (i.e., sectoral GHG emissions); Assessing investment and mitigation costs, system abatement costs, financing and support requirements and lead time for implementation and impact; and Providing assistance with design and implementation of policies, measures and instruments. The Coordinating Ministry of Economic Affairs deals with matching economic policies with climate change and vice versa, coordinating sectorial/line-ministries with Bappenas. In addition, relevant line ministries and agencies are in charge of managing climate finance in their respective areas, in particular Forestry, Agriculture, Environment, Energy and Mining, Trade, Industry, Transportation, Public Works, and others. The following figure gives a description of the institutional framework that handle climate finance in Indonesia. 15

Figure 2 - Institutional Framework Stabilization level, National Emission, Reduction targets and MRV Under the decentralization law in Indonesia 6, local governments decide independently on certain political, fiscal, and administration aspects of governance and have the option to follow or to not follow central policies. This has implications for the planning and delivery of climate finance sources and strategies. Given Indonesia s high degree of decentralization, district and provincial government play a vital role in accessing and managing climate finance, mostly channeled through transfer from the central government. The Ministry of Home Affairs plays a key role in ensuring the coordination with sub-national actors in line with national policies. Many sub-national governments suffer from capacity constraints that need to be addressed but some regardless are already taking mitigation into account when preparing sectorial plans. From the perspective of economic agencies such as the Ministry of Finance, the inclusion of climate change priorities into the fiscal transfer system is a necessary pre-condition to successful financial planning, management and accountability. Based on stakeholder consultations with the Ministry of Finance in Indonesia, it is understood that the Ministry of Finance is piloting a system for providing additional grants to those provinces that have demonstrated an ability to address mitigation, but this is still at an early stage. The private sector has an important role to play in implementing climate policy as a potential source of investment in forestry, peat lands, energy and transportation. Civil Society Organizations (CSOs) are involved in investment as well. The media are important in promoting public awareness, public understanding and public interest in mitigation and in contributing to transparency. Parliamentarians also have an important role in raising the importance of climate change, both as representatives of wider public interest and as leaders of public attitudes. 6 Indonesia introduced decentralization guidance in 2001 under Law 22/1999 on regional governments and Law 25/1999 on fiscal balance between the central and regional governments. In 2004, they were replaced by Law 32/2004 and Law 33/2004. http://www.oecd.org/indonesia/45362389.pdf 16

The Jakarta Municipal Government is the main implementation body for Transjakarta while the operational activities are carried out by BLU Transjakarta. BLU Transjakarta is a public authority under the transportation agency of the Jakarta Municipal Government. BLU Transjakarta manages the operation of the Transjakarta system. It oversees bus operations run by nine different bus companies. Some of these bus operators are existing bus companies whose routes overlap with Transjakarta corridors, while the others are individual operators selected from a competitive tendering process. Typically, buses are purchased and owned by the bus operators. Operators are paid per bus kilometer travelled throughout their seven years operating contract period thus passing the financial and revenue risks to the municipality (New York City Global Partners, 2012). The local government in Jabodetabek is the main implementing party for the Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) NAMA project. The Ministry of Transportation will serve as the coordinator of transportation NAMA at the national level. The Ministry of Finance is expected to assist in the provisions of the necessary funding (PIP, ICCTF, APBN/APBD). 17

5. Policy and Legal Framework In 2009, Indonesia s Climate Change Sectorial Roadmap set a strategic vision for responding to emerging climate challenges in important sectors of the economy. In the same year, the Ministry of Finance s Green Paper set out concrete fiscal and economic strategies for mitigating climate change in Indonesia. In October 2009 at the G20 summit, President Susilo Bambang Yudhoyono committed to reducing Indonesia s CO 2 emissions by 26% against a business-as-usual trajectory using domestic resources, and by 41% if developed nations give financial support, by 2020 (Brown and Peskett, 2011). This would be the largest absolute reduction commitment made by any developing country. The Government of Indonesia then declared the Presidential Decree in response to this announcement, known as the Decree for GHG Emission Reduction (RAN GRK). The Decree is coordinated and written by Bappenas. Indonesia s NAMAs, a set of planned policies and actions to reduce GHG emissions, are being developed within the framework of the Decree. Indonesia is not only taking steps to reduce emissions, but it is also paving the way to address climate change adaptation through its National Climate Change Adaptation Action Plan (RAN-API) that is currently being finalized and will help build resilience to climate impacts across the country. Building resilience and decoupling GHG emissions from economic growth requires mobilization of public and private climate finance from key actors to deliver significant expenditure and investment to support development of a more sustainable economy. Various fiscal policy measures have been regulated to facilitate the transition towards a more sustainable production system in forestry, energy, industry and transport. Indonesia s desire to drive economic growth and reduce climate risk is reflected in the sweeping policy reforms it has introduced in recent years to meet targets announced in 2009 to reduce GHG emissions. Public policy and finance will play a crucial role in meeting these targets. International and domestic public actors are now scaling up investment, and different levels of Indonesian government are setting up frameworks to incentivize the private finance that will undoubtedly also be required. Indonesian cities, including Jakarta, plan to implement environmentally and climate-friendly, energy efficient urban transport programs that introduce transport demand management measures. An expert panel from Directorate of Transportation (central and provincial level) will be trained on the subject of sustainable transport. The Directorate of Transportation within the Ministry of National Development Planning (Bappenas) will be the nodal agency for programs instituted by this expert panel. These programs will include the following parameters: Adoption of national sustainable urban transport policy. The activities already initiated by Indonesian Government are: o During Jan. 2013, Indonesia developed the "Sustainable Urban Transport Initiative (SUTRI)" as a NAMA, seeking support for implementation. The SUTRI links to existing policies like Relevant National Policies National Development Plan, National Transport Master Plan (Land, Railways, Maritime, and Aviation), RAN GRK (National Mitigation Actions), and RAD GRK (Local Government Mitigation Actions)]. 7 7 Source: http://climate-l.iisd.org/news/indonesia-submits-sustainable-transport-nama/ 18

Adoption of the Sustainable Urban Mobility Plan Guideline (Indonesian version is available on www.sutip.org). Preparation and adoption of action plans on sustainable transport development (already adopted in few Indonesian cities). Toolkit for Sustainable Urban Transport Improvement (under development). Elaboration of a BRT concept. Currently, the BRT system is available in two cities, Jakarta and Yogyakarta. The following figure summarizes chronologically the recent significant policy measures undertaken in Indonesia that support climate change mitigation. Figure 3- Policy measures for Climate Change mitigation undertaken in Indonesia Source: Climate Finance in Indonesia: Lessons for the Future of Public Finance for Climate Change Mitigation, Jessica Brown and Leo Peskett, Overseas Development Institute, 2011 A country s national and local action plans serve as starting points for the development of NAMAs. Indonesia s commitment to reduce GHG emissions is codified in the National Action Plan on GHG Emission Reduction (or RAN-GRK), regulated under Presidential Regulation No.61/2011 (Brown and Peskett, 2011). The Local Action Plan on GHG Emission Reduction (RAD-GRK), launched in late 2012, lays out provincial contributions to these targets, including provincial baselines and emission reduction targets. The Government of Indonesia has signed and ratified a number of international and regional conventions which are relevant to the mitigation of GHG emissions. The country hosted the UNFCCC 13 th Conference of the Parties in Bali and a high level meeting of Finance Ministers and published its National Action Plan Addressing Climate Change (NAP) 8 that includes regulatory efforts to be implemented for tackling climate change across sectors for both short and long term implementation. The Government of Indonesia has implemented a range of climate change programs. Some of these have been funded by loans, which are considered as domestic financing. The CCPL and ICCTF illustrate possible modalities for domestic funding. Other climate change programs have been funded by grants from international partners. 8 http://www.unep.org/transport/pcfv/pdf/pathumbai_estinindonesia.pdf 19

Efforts are being made to integrate climate change into the Indonesian national policy processes. The role of decentralization in the government, where district and provincial government have increased power and autonomy in decision making, has added to the complexities of coordination and leadership. Having long term clarity on national targets should promote local governments to align their targets with national policies. 5.1 Presidential Decrees The following are some of the presidential decrees that support national emission reduction targets. 1. Presidential Decree No.19/2010 followed by Presidential Decree No. 25/2011 on The Establishment of Task Force for the Preparation of REDD+ (Reducing Emissions from Deforestation and Forest Degradation, including conservation, sustainable management of forests, and enhancement of forest carbon stocks) Institution, June 2010 and June 2011. 2. Presidential Regulation No. 61/2011 on National Action Plan on Greenhouse Gases Emission Reduction (Perpres RAN GRK), September 2011. 3. Presidential Regulation No. 71/2011 on the Administration of National Inventory for Greenhouse Gas (Perpres Penyelenggaraan Inventarisasi Gas Rumah Kaca Nasional), October 2011. 4. Presidential Instruction No. 13/2011 on Energy Efficiency and Water Conservation. August 2011. 5. Presidential Regulation no. 80/2011 on Trust Fund (Perpres tentang Dana Perwalian), November 2011. 6. Joint Ministerial Decree of Home Affairs Minister, Minister of Development Planning/Chair of Bappenas and Minister of the Environment on the Regional Action Plan for Greenhouse Gases Emission Reduction (RAD GRK), January 2012. The above decrees set targets for GHG emission reduction in Indonesia and therefore support the development of NAMAs in the country. 5.2 Policy Instruments Climate change mitigation policy involves a wide range of instruments. In Indonesia, a range of revenue measures have an impact on mitigation, including taxes, fees, charges, royalties, and rents. Subsidies and tax concessions are also used, notably the subsidies involved in fuel and in public transport. Other elements of pricing policy may also be important, including energy pricing and the implications of this for poverty reduction 9. These revenue generation measures are often combined with regulations that complement fiscal measures, including administering licenses to cut forests, land use planning, especially by local governments, and environmental impact regulations. For example, public transport is subsidized by many city governments in Indonesia. There is no central record of the value of these subsidies, but unofficial reports suggests that the subsidy to Transjakarta was IDR 333 billion in 2011 (UBS Indonesia Conference, March 2011). In addition, over the last two years, the Government of Indonesia has spent over IDR 120 trillion / year on fuel subsidies from the state budget, with the objective of promoting economic growth and avoiding 9 Currently, energy pricing in Indonesia is under government control. Hence, any subsidy or cross subsidy reform on transport fuel can support or deter sustainable transport. For example, subsidized natural gas prices (as part of pricing policy) may promote the use of gas as opposed to diesel. This will provide cheaper clean fuel options. 20

inflation. The subsidy typically amounts to about half of the full cost of the 40 billion liters/year of petrol and diesel consumed. As noted in the Indonesia First Mitigation Fiscal Framework, the short run price elasticity of demand for fuel is about 0.1. Thus, halving the subsidy and raising prices by 50% could reduce consumption of fuel by 5% and reduce emissions by about 5M tco 2 e (Ministry of Finance, 2012). In Section 7.6.4, further discussion is provided on possible areas of policy revision associated with the Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) NAMA. 21

6. Costs and benefits of NAMA Intervention This section explores the trade-offs between the costs and benefits (emission reduction and travel time reduction) by performing an investment analysis for setting up new Bus Rapid Transit (BRT) corridors for Transjakarta. BRT has emerged as a viable option to enhance transportation capacity and provide increased levels of mobility and accessibility in Indonesia. BRT lines can transport large numbers of people efficiently and cost-effectively and is an attractive way to get drivers out of their cars and into mass transit. BRT helps improve transit speed and reliability on urban streets. The BRT system is particularly effective and reliable when the buses operate in conditions that are free from delays caused by other vehicles. The benefits and cost of adding new BRT corridors to the existing Transjakarta system will depend heavily on how such a project affects traffic speed, time delay, and vehicle miles travelled. The benefit will depend on the extent to which the addition of corridors results in mode shift to BRT. Thus, a critical part of this section is the description of the analytical methods and assumptions used for these calculations. This analysis involves identifying and quantifying benefits and costs that will accrue if a project is undertaken. Therefore, it will help to determine economically efficient investment alternatives, i.e., one that maximizes the net benefit to society from allocation of resources. For transportation projects, this involves estimating a dollar value for benefits to users of the facility, a value for social benefits, and comparing these benefits to project capital and operations and maintenance costs. Transportation agencies are typically required to do a detailed cost benefit analysis to justify investment in a particular project. Such an analysis compares project alternatives with the no build base case, to determine a locally preferred alternative. To enable comparison of alternatives, it is necessary to standardize the categories of benefits and costs that are considered and the methodology that is used to calculate them. Direct benefits to users of the upgraded BRT system include travel time savings, fewer vehicle operating expenses such as fuel purchases and out-of-pocket vehicle ownership expenses, and reduced costs associated with vehicle accidents. Other direct benefits can accrue to users and non-users, such as reductions in emissions and noise. For the purpose of this evaluation, only the benefits arising from emission reduction and travel time savings have been considered. This is because these two benefits have significant direct benefits that can be quantified. While these impacts can be relatively simple to estimate, much variation exists in how benefits are monetized. The construction, operation, and maintenance costs of the project are used for this analysis. The two benefits considered in this evaluation are sufficient to develop a business case. Indirect benefits from the Bus Rapid Transport Development in Greater Jakarta (Jabodetabek) NAMA can also arise from increased economic development and land development. Ease of commuting travel enables employment opportunities from farther distances. Other co-benefits include health benefits, less air pollution, job creation for the operations & maintenance, and in introducing new technology. These co-benefits are however omitted in this analysis as these are difficult to estimate owing to limited data availability. The costs against which these benefits are weighed are also very varied. 22